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Nobel Traditions

A visit to the Vernon L. Smith Experimental Economics Laboratory

Fall 2012By Eric Nelson

You won’t find any test tubes or safety goggles in the Vernon L. Smith Experimental Economics Laboratory. Other than computers, in fact, there’s nothing particularly high-tech about the facility, tucked quietly away on the seventh floor of the Krannert Building.

But its nondescript appearance belies a tradition of groundbreaking research first begun by its namesake, a Nobel Prize winning economist who taught at the School of Management for 12 years.

Smith, known as the father of experimental economics, began his academic career and research at Purdue in 1955, says Tim Cason, the center’s founding director and the Robert and Susan Gadomski Chair in Economics.

Borrowing techniques from laboratory experiments in psychology, Smith created the first “classroom” markets by designating half his class as buyers and half as sellers of fictitious goods. He gave the buyers and sellers different ranges of prices and had the students interact freely and negotiate trades until price and quantity achieved equilibrium, or in economic terms, "made a market." His later experiments added greater laboratory control through monetary payments based on market trades and more sterile computer-mediated exchanges.

Cason, who joined Krannert in 1998 and was named a distinguished professor in 2010, has known Smith for more than 20 years. He is also past president of the Economic Science Association, an international professional organization for experimental economists that Smith served as founding president.

Cason met his mentor while working as a visiting graduate student at the University of Arizona in 1989, the same year Purdue awarded Smith an honorary doctorate in management. The colleagues reunited in 2002 when Smith shared the Nobel Prize in economic sciences and spent part of the year in West Lafayette as a visiting professor.

The lab that formed as a result of Smith’s pioneering work was renamed in his honor in 2003, and today, Cason and other Krannert researchers expand on his legacy through experiments that test increasingly complex and sophisticated economic hypotheses and mechanisms before their introduction to real markets.

In recent years, for example, experimental economics research conducted by Purdue faculty members and doctoral students has been used to guide the formation of environmental conservation policy, to assess the procurement and distribution of public goods, and to understand the role of gender in managerial decision-making, among other issues.